A REEXAMINATION OF SOUTH KOREA’S AGGREGATE IMPORT DEMAND FUNCTION: THE BOUNDS TEST ANALYSIS
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Abstract
This paper uses a robust estimation method referred to as the unrestricted error correction model- the bounds test analysis to re-analyze the long-term relationships between the demand for imports and it’s determinants for South Korea over the period 1980-2000. Our results show that the volume of imports, income, and relative prices are all cointegrated. The estimated long-run (short-run) elasticities of import demand with respect to income and relative price are 1.86 (0.86) and-0.2 (-0.05), respectively. The major implication of our study is that neither monetary nor fiscal policies may be used as instruments to maintain the trade balance in South Korea’s favor during this sample period.